24 June 2009

How Drought Promotes Entrepreneurship

A guest post by J. David Foster*

We all know the impact of rainfall on crop production and we know, or think we know, the impact of rainfall on economic growth but how many even think about the impact of rainfall on entrepreneurship? Although sociologist Max Weber has long been famous for his theories on “The Protestant Ethic and the Spirit of Capitalism”, based on my observations in India, I believe that differential patterns of rainfall have often had far more impact on “the spirit of capitalism” than any differential religious persuasion.

First, by way of background, I want to give you a little information on the nation of India where I have worked as an environmental advisor for the past 5 years and have been visiting since the early 70s. Although in most respects India is a remarkably unified and stable country, for outsiders it is often useful to think of India as analogous to Europe with an even greater variety of languages, ethnic groups, customs, cultures and cuisines. There is as much difference (both geographically and culturally), for example, between Kashmir (in the North of India) and Tamil Nadu (In the South) as there is between Norway and Greece.

One of the most striking geographic variations within India is the difference in rainfall patterns. In the semi arid tropics of Andhra Pradesh (South Central India), where I live for example, serious droughts can be expected to occur about once in 7 to 10 years. By contrast, in more arid Rajasthan and parts of Gujarat droughts will occur every 3 to 4 years. And at the other extreme, in Kerala (blessed with two monsoons per year) droughts of any kind are extremely rare, no more frequent than once in 20 years.

The question we want to pursue is: What may have been the cultural impact of those variations in rainfall? Now, let’s think about what happens to people (or at least those who prosper) in the most drought prone regions:

They develop off-farm options for employment (handicrafts, trade & manufacturing) to enable them to survive during those seasonal or even year long droughts,

They develop savings habits initially designed to tide them through the droughts (the obverse of saving for a “rainy” day) that can later be used to raise capital to finance a variety of business ventures, and

Those who fail to develop these aptitudes (either through lack of discipline, ill health or bad luck) often wind up having to sell their lands to the most successful ones and frequently wind up working for large landowners.

Now looking back to the cultural and entrepreneurial patterns across India it is unmistakable that the most drought prone states, like Rajasthan and Gujarat, produce by far the most Capitalists while the well watered states like Kerala and West Bengal produce the most Communists. [Kerala and West Bengal have regularly voted Communist for at least the last 20 years and are the only states in India to have done so.] What is even more remarkable is that it is the rainfall/drought variable that appears to dominate regardless of variation in religion, ethnic group, or differential exposure to foreign trade or colonialism.

Although not blessed with great ports or other natural resources, drought prone Rajasthan has produced more billionaires (including the owner of the world’s largest steel company) than any other area of the country, Neighboring Gujarat (also drought prone but not quite to the extent that Rajasthan is) is widely known for exporting successful small businessmen to East Africa, North America (especially motels and sandwich shops) and the UK. Interestingly, in well watered West Bengal where the British established an early capital of its colonial empire, the native Bengali people excelled as civil servants but the most successful businessmen were ethnic Mewari, originally from drought prone Rajasthan.

It is the Southwestern state of Kerala which benefits from both the Southwest and Southeast monsoons; however, that provides the greatest contrast to arid Rajasthan. Despite having the highest literacy rate and best health care of any state in India, Kerala has relatively few successful businessmen. Kerala has also welcomed European, Arabic and Chinese traders for centuries and is home to Muslims, Hindus, Jews and Christians. {Many people even claim descent from early Christians converted by the apostle Thomas.} Kerala is widely known for its food and spices, its beautiful scenery and tourism, its Doctors, Nurses and labor unions but not for its entrepreneurs. With few exceptions, Kerala is largely known as a region of small farms and relatively even income distribution. In fact, any conspicuously large home is most likely the consequence of remittances sent back from a family member working abroad rather than from domestic business success.

Finally, although this theory regarding the role of adversity in promoting entrepreneurship is based primarily on observations of drought in India, it is fully consistent with observations regarding the long recognized entrepreneurial role of ethnic Chinese people throughout Southeast Asia. Whether in Thailand, Malaysia, Indonesia or the Philippines; there is a common aphorism that: “if there is a store in town, there are probably people of Chinese origin that run it.” The generally accepted theory behind this observation is that ethnic Chinese arriving in tropical rainforests from colder, drier, more seasonally affected regions of China had a cultural advantage over their tropical counterparts when it came to saving, investing and other entrepreneurial activities. If “every cloud has a silver lining”, maybe occasional droughts have a silver lining as well.

10 comments:

The silver lining seems to depend on the assumption that uneven accumulation of capital is a good thing. I'll take high literacy, high health, and low numbers of capitalists any day over an accumulation of mega-wealthy people!

Very misleading. It's government, not rain fall that matters in the aggregate. Kerala and Bengal have been ruled by communists for the past forty years; Rajasthan and Guj. have had centre-right governments for twenty years.

It may also be a function of population and ethnic groups. Too many variables and too anecdotal for my taste.

Please note: I never sought to identify the kind of society that Michelle and JDG would find ideal but rather to offer observations that seem to provide strong correlations and plausible explanations between the skills required to cope with droughts and those most useful for entrepreneurial activities.

Clearly Charles Johnson is right about Kerala and West Bengal having been ruled by Communist governments. The interesting question is: Why was it only these two well watered states (out of a total of 26) that consistently voted Communist? Furthermore, these two states completely different ethnically and sit at opposite ends of the country.

He started to talk about something I wondered about when he got to the small green farms and doctors of Kerala. Drought-driven Entrepreneurship is great and can spur development, but is it a high-risk-high-return for a benefitting a relative few (who could potentially impact a lot more people) as opposed to more stable rains allowing for lower-level but broader prosperity? Someone should do a quick check of rainfall, health, education, ag yields, and other poverty stats to get a quick idea.

In the northern high plains of Mexico where agriculture is a difficult occupation, entrepreneurship flourishes. For example, in the state of Nuevo Leon ( south of west Texas) with a harsh dry climate there are more self made billionaires than any other part of Mexico. Monterrey, the capital of Nuevo Leon, has an extremely large industrial base. In the 16th and early 17th century this was hostile Indian country and early Spanish settlers raised cattle, sheep and goats, but eventually some of the settlers were successful and became land aggregators. Exporting products in the 17th century was difficult at best because there were few if any roads to the larger population centers in southern Mexico. Industry consequently did not start until the 19th century. Mexico is an interesting economic study because of the isolation of populations. Even today, Mexicans feel very much part of the region in which they live rather than thinking of the country as a whole. Mexico is similar to Spain. The early conquistadores of Spain, for the most part, came from a dry miserable province called Estremedura. They had nothing to lose, leaving Estremadura and taking a chance on going to the new world. They were also a culturally mixed population (Spanish, Portugues and Moorish). This goes along with your views of the arid areas of India, especially when you mix the old world, Iberian blood lines with the Indian tribes of "New Spain".

Labour in Kerala is thoroughly unionized. If an employer asks a tea boy to make him a coffee, the whole state will go on sympathy strike with the "exploited" tea boy. By contrast labour in Rajasthan can be asked to do anything and will comply!!!